Government Public Property Limitations on the Real Estate License Exam

Government plays a major role in how land is used. There will be questions concerning the role of government on the Real Estate License Exam. Public limitations on land use exist at all levels of government: village, town, and city (usually referred to as municipalities), and county, state, and federal. Government regulations on land use can and do limit what you can do with your property.

However, other government limitations on real estate have to do with what you expect the government to do for you in terms of services and buildings. You expect the government to build roads, bridges, parks, schools, and many other infrastructure facilities. The government needs money and land to accomplish these things, so it places limitations on land use.

Most local governments depend on property taxes to pay for their services like schools and road maintenance. Because land doesn’t go anywhere, it is always there, is hard to hide, and unlike salaries, its value is fairly predictable from year to year. It provides a good, stable source of income for local governments.

With the exception of federal rules and regulations, all other specific limitations and how they are applied and enforced vary by state and even by municipality. Fortunately, most of the exam questions asked about this topic are about the general stuff.

Eminent domain

Eminent domain is the right the government can exercise to obtain ownership of your real estate against your will. The government always has the right, like any corporation or individual, to negotiate with you to buy your property. Conversely, you are free to turn down the government’s offer the way you would in any sale of your real estate. Usually, the government prefers negotiating when it needs land for something.

The government uses its right of eminent domain when it must have your land, and you refuse to sell it voluntarily. It does this through a suit of condemnation. This process sometimes is called taking.

Because the government has the right to take ownership of your property through eminent domain, it also has the right to take less than full ownership or less than the entire property. So the government can take the front ten feet of your land to widen a highway but leave you the rest of the property. This type of limited right is called an easement.

The government must meet these three requirements to be able to obtain a property through eminent domain:

The ultimate use for the land must be for a legitimate public purpose. Public purpose may be to build a road or a park or install a sewer line, among other things.

A fair price must be paid to the owner. The price usually is determined by an appraisal and sometimes is challenged by the property owner obtaining his own appraisal.

The government must follow all required legal procedures, or in other words, exercise due process. The specific requirements of due process vary from state to state but may include certain mandatory notices to property owners, minimum time frames for owners to be notified, and environmental reviews before the eminent domain action can be taken.

People always can fight eminent domain proceedings in court either because they believe that the use is not a legitimate public purpose or because they believe due process was not followed. In addition, they can argue about the value of their property. In a related type of argument with the government, they also can pursue inverse condemnation.

Inverse condemnation is where a landowner sues the government because of a loss in value that is the result of a government action. Building a sewage treatment plant can reduce the value of nearby properties, for example. Neighboring property owners may sue the government for payment of their property value losses or to force the government to buy their properties outright.

Escheat

Escheat, which literally means transfer, is the process by which the state obtains property from people who die without heirs and without a will. The legal term for dying without a will is intestate. This state right prevents property from being without an owner.

In case you’re wondering, obtaining property by escheat isn’t a significant way for the state to get the property it needs for various public works, and it has very little to do with your future real estate careers. The term, however, almost always is included in a list of government limitations on real estate use, and more important, often appears on state real estate exams.

Taxation

Why it’s mentioned here is because in most discussions of government limitations on the use of real estate, taxation is included. After all, it’s the way most local governments (towns, villages, cities, and counties) raise money to provide public services and buildings, and if you don’t pay your taxes, you lose your property through a process called foreclosure, the most limiting kind of restriction someone can put on your property.